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The Panic of 2008

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ThatHawaiiGuy Member Level  Tuesday, 10/21/08 03:09:51 AM
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Post # of 305 
The Panic of 2008



GO for sales pitch on those two companies:
http://www.321gold.com/editorials/moriarty/moriarty102108.html




Bob Moriarty
Archives
Oct 21, 2008

"The two companies I saw a week ago not only have real business models, each is selling for less than the cash they have in the bank. At this point, they are worth more dead than alive. That's no risk at all."

People who have been following this site know that I have been predicting a depression for years. It's here. Even the dolts in Washington are starting to figure it out. The credit system has ground to a halt. Commerce is on the verge of a complete breakdown. 18 hours after the bank holiday starts, the riots begin.

LOL

Physical gold and silver are insurance policies against financial chaos. We have financial chaos. You can still buy an insurance policy and that's the greatest deal in investment history. You think governments printing of $7 trillion dollars of kerosene dumped on a financial holocaust won't have an effect? It will.

The United States dollar is going to default soon. We have known since late 2002 that the US was in deep trouble. Treasure Secretary Paul O'Neill revealed the United States Government had a real debt of $44 trillion and it was growing at a rate of $2-$4 trillion per year. As of last year the debt was up to $59.1 trillion.

Even before the government started throwing money around like a drunken sailor US spending was totally out of control. In the fiscal year ended September 30, 2008, the actual yearly deficit totaled $1.017 trillion. We are broke and anyone who passed Economics 101 has figured that out. Soon, very soon, the US will officially default on their obligations.

I've made mention many times the incredible figure of $596 trillion dollars worth of derivatives. The world economy is only $60 trillion dollars. It's a giant crap game where everyone is playing with Monopoly money. Everyone believes that when the music stops, they will find a chair. But there are no chairs. The number of nearly $600 trillion is so large that it has to be fraud. Derivatives have doubled in two years. How? The world economy hasn't doubled in two years.

Soon there will be a mad rush into "things." There is no choice. You can buy TBills and frame them so you can mount them on your wall. Then you can point to them when your grandkids come over and say, "See that? That used to be considered money." TBills are toast.

Fannie Mae? Forget it, they are bankrupt. The greedy dullards in Washington think they can actually do a better job of running Fannie Mae than the greedy dunderheads who used to run it for a profit? Are you kidding?

Swiss Francs? I doubt it. They are about to go the way of Iceland. Actually the Swiss government is deeper in debt than Iceland was.

"Things!" You need to be in "things" else your assets are going to be poured down a black hole. I am even coming to the point of view that gold and silver ETFs have joined the "Useless as teats on a boar pig" category. The risk is no longer market risk or even "Do they have the gold risk?" The risk in everything today is counterparty risk. That's why banks wouldn't dream of trusting each other. They do have a point. They have looked in their own cupboards and found them bare.

The best and safest forms of investment (as opposed to an insurance policy of physical gold and silver) will be high quality gold and silver producers. We need to get away from the business model of "Print and Drill, Print and Drill" and exchange it for the 7-11 Business model.

Think about it for a minute. How many 7-11s sell a quart of milk at a loss? The answer is zero. Never have, never will. If you are going to invest in a junior, you need to know that they have a business model that will make money some day.

That's easier than you might think. I just came back from a visit to Nevada and Wyoming where I saw two great juniors that you can safely buy even if you think the 2nd Coming is tomorrow.

Let's talk about gold and gold shares for just a moment. We have just gone though the most crushing crash of gold stocks in history. 1929 was nothing in comparison. Many stocks lost 50% in a week. What happened and why didn't anyone warn us?

Well, I'm one of the guys who has been preaching that gold shares were a safe haven and they obviously have not been. I could plead manipulation and please the conspiracy crowd. People love the manipulation theory because it means you never have to admit you were wrong. When the market moves against you, just scream, "manipulation" as loud as you can and you get a free pass.

I'd love a free pass. I was dead wrong, and I feel bad, especially for the new readers who have only just recently shown an interest in the resource stocks. But if it's any consolation, my accounts are down just as much as yours. But I don't warp facts to fit my theories. When my theories don't match the facts, I revise my theory.

We have $596 trillion dollars worth of derivatives. When the first Bear Sterns funds exploded in June of 2007 it started a process of deleveraging. We need to unwind hundreds of trillions of dollars worth of fraud. There are going to be trillions and trillions in losses. Governments around the world have dumped $7 trillion in kerosene on the fires and naturally they are getting worse. Governments and Central Banks screw up everything they do.

Hedge funds, investment banks and investors of all sizes are dumping everything and anything on the market to raise money. As a result, the greatest transfer of wealth in history is taking place. As the overleveraged fools dump, at the right time you can pick up assets representing real "things" for pennies on the dollar.

I think we are at a bottom in the juniors. We saw a crash into September. We have had a test in the last week. and we are about to explode higher. There is a lot of money on the sidelines just waiting to find a safe home. When people realize the only safe haven is in shares of companies holding real "things" those companies are going through the roof.

As of Friday October 18th, gold has dropped 7 days in a row. On Tuesday October 21st, $400 billion dollars payable to holders of Credit Default Swaps on Lehman Brothers comes due and that could get real exciting. But basically resource stocks are cheap, they have tested the September lows, October is typically the month for things to crash and we've had ours. It's time for a rally if for no other reason resource shares are cheaper in every way than they have ever been before in history.

I'm going to be a lot more careful in the companies I invest in. I'm going to study the business model and if it doesn't have a way to make money, I'm not investing.

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